TMI Blog2005 (2) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... proved by him. 3. As per the agreement, the assessee-company was to construct eight buildings in the landed property owned by the charitable trust. One out of the eight buildings was to be constructed and handed over to the charitable trust, free of cost. The trust would thereafter let out the said building to augment its resources for charitable purposes. Another building is again to be constructed free of cost for the trust to use as a community hall and fire temple. The balance of buildings available for construction with the assessee was six. Out of the remaining six, the assessee has to construct one building to be handed over to the State Government to include in its scheme of housing provided for weaker sections of the society. The said building was to be constructed not free of cost. The assessee could sell the flats in the said building assigned to the State Government @ Rs. 654 per sq. ft. The remaining five buildings would be constructed by the assessee-company and sold to weaker sections of Zoroastrian community at the rates to be fixed by the Charity Commissioner of the State Government. 4. During the previous year relevant to the assessment year under appeal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty relying on the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilisers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) held that the accounting practice said to be followed by the assessee-company cannot overtake the provisions of law and, therefore, as the method of apportionment worked out by the assessee-company was not acceptable to him, the same would be disallowed. He held that as far as the assessee's case is concerned, the sale of flats and the construction of two buildings free of cost are too separate transactions within the composite project to be executed on the basis of the agreement. He held that the said expenditure could not be held as incurred during the relevant previous year. In short, the finding of the assessing authority was that the amount deducted by the assessee-company represented contingent liability alone and not actual liability. In other words, the conviction of the assessing authority was that the claim of the assessee-company was premature. 7. When the matter was taken in first appeal, the CIT(A) agreed to the view taken by the assessing authority and held that the expenses relatable to free buildings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computing the income of the assessee. He stated that the liability has been scientifically estimated on a pro rata basis depending upon the cost and the area of free buildings and saleable buildings. 10. The learned counsel further relied on the decision of the Tribunal, Mumbai Bench 'B', in Dy. CIT vs. Rajgir Builders (1999) 65 TTJ (Mumbai) 538 : (1999) 70 ITD 226 (Mumbai). 11. Shri O.P. Sharma, the learned Departmental Representative appearing for the Revenue, contended that the deduction of liability in computing the taxable income of the impugned assessment year is against the method of accounting employed by the assessee-company. There is no dispute that the assessee-company is following project completion method. The development project undertaken by the assessee-company on an agreement with the charitable society was a composite project. The assessee had to construct free of cost buildings as well as saleable project. The construction of both categories of buildings should be taken together and as a Whole and the project has to be viewed as a comprehensive and integrated one. Therefore, the liability/cost relating to the construction of free buildings could be deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue, the said contention should hold good for income also. If the income and expenditure with reference to the project could be recognised only on the completion of the entire project as a whole, how the AO is justified in assessing the income recognised by the assessee-company on the completion of sale of the first building, constructed by it. The AO should have deferred the recognition of income worked out in respect of the completed building till the entire buildings are completed and sold of. When it is the question of deduction of liability by way of expenditure, the assessing authority states that it could be allowed on completion of entire project. At the same time, while recognising the income for the purpose of taxation. the AO accepts that on sale of the flats of the first completed building, the assessee has earned income and, therefore, it is to be taxed. Obviously, the stand taken by AO is contradictory. 16. In fact, what the assessing authority has done is a pick and choose method. The assessing authority recognised the income at the earliest point of time and recognised the corresponding expenditure only at the latest point of time. Neither the assessing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax. That has rightly been done by the assessing authority while recognising income in the hands of the assessee-company. 19. In the facts and in the circumstances of the case, we are of the considered view that the assessee-company is justified in claiming by way of deduction, the liability of Rs. 1,08,16,500, attributable to the proportionate expenditure relating to the construction of free buildings. 20. In fact, the Tribunal, Mumbai Bench 'B', in the case of Dy. CIT vs. Rajgir Builders has considered an exactly similar case. In that case the assessee, a builder, entered into an agreement with another party for construction of flats and shopping centre. As per the agreement, the assessee was to take and appropriate the sale proceeds of 57 flats in consideration of constructing and handing over of free of cost, 39 flats and 24 shops to the other party. Construction and sale of 57 flats were, completed in the period relevant to the assessment year under appeal and the construction of 24 flats to be handed over to the other party was not complete. While computing taxable income, the assessee estimated the cost of construction of 24 flats and claimed the same as deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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